Financial Islands Plan Well
and You'll Enjoy the Stay Without Worry
Jack Lewis Ludwig, CFP
Today, more people than ever should achieve a comfortable standard
of living in retirement, free of financial worries. However, the
sad fact is that of 100 people who live beyond the age of 65, only
an estimated ten will encounter minimal financial worries. In 2002,
that means earning at least $50,000 a year. But half of those same
100 people will earn less than $7,500. So what do the allegedly
successful 10 percent do that the other 90 percent fail to do? They
probably aren't even aware of it.
Just as people look forward to and plan for great vacations, they
prepare for retirement! They study and mold and modify a plan until
they are satisfied that it is what they want and can afford. Smart
people learn about where they're going; what to do when they get
there; how they're going get there; and what they need to enjoy
and protect themselves, and provide for contingencies to deal with
The average traveler may invest as many as 50 hours each year to
plot out a vacation plan. How many hours do you think you should
spend preparing your journey to the "Financial Islands?"
After all, isn't that where you'd hope to enjoy your post-retirement
years? Considering your life expectancy, you should think of it
as at least a "Twenty-Five Year Vacation." Wouldn't you
like those years to be as good as the best ones of your life? If
you plan to retire at age 60, the odds today are good that you'll
live to well past 85.
DREAM OR NIGHTMARE
Failing to prepare for your dream vacation correctly can be
hazardous to your health. Think of inoculations and medical emergencies.
Failure to plan financially for your future can be likened to a
living death, doomed by having outlived your assets. Cruel real-life
stories that still come to mind come from the late '70s when rampant
inflation wrecked lives and grizzly tales circulated about the elderly
trying to subsist on pet food.
By failing to plan and understand meaningful alternatives for your
retirement, you may be subjecting yourself to great risk. Many retirees
living on "guaranteed fixed incomes," even those with
pensions and other savings, could face a sharp decrease in purchasing
power, which, in turn, decreases their standard of living.
PLAN FOR TWO
When preparing for a vacation, most people share the planning
experience with their spouses. Deciding how you and your significant
other will spend time off ought to be exciting. So if you include
your spouse in planning your vacation, don't exclude him or her
from your financial and retirement planning. Joint decision-making
is crucial for financial planning. The spouse who makes plans alone
is frequently not around to enjoy them. All too often that imposes
extra burdens on the survivor who wasn't privy to the rationale,
doesn't possess the experience and knowledge to handle it, and may
not have any desire to do it on their own.
Vacation planning begins with basic research and decisions.
Will you return to a favorite place or try something new? There
is never anything wrong with the tried and true in financial plans
- or is there? If you restrict yourself to CDs and savings accounts
as your primary investments, you probably won't get very far, or
enjoy very much. You'll also miss out on many worthwhile investment
opportunities and possibilities for meaningful wealth accumulation,
with reasonable risk.
Those who try ultra new vacation spots - the investors who rush
to include "hot" stocks" or "The Eight Best
Mutual Funds of the Year" - are merely travelling to questionable
places without quinine or a return ticket. Investors who sincerely
want to expand their horizons with proven and/or updated investments,
are the people who'll move toward increased income and growth plus
enhanced family protection. It is like the classic credo of investors
and inventors: "If you are always looking for a better way,
you're more likely to find one than if you stay complacent."
WHERE TO GO?
Of course, you can do all the research by yourself, or you can
seek assistance. Advice is preferably available from "experienced"
friends or professional travel agents, but it's probably wiser to
seek the recommendations of trained professionals rather than trusting
the advice of "well-intentioned friends."
Investing, too, involves such careful study, selecting locations
for various kinds of and purposes for your capital. Again, you can
do the research and investing alone, but you'd be far better off
seeking the advice of a "well-trained and experienced professional."
Just like the travel agent who's personally familiar with your vacation
essentials, a financial advisor is best suited to help develop and
implement a wealth accumulation and distribution plan that fits
your needs and goals.
Whose advice you seek is as important as the advice itself. Over
time, you'll develop a familiar relationship with your travel agent,
who'll remember and understand your likes and dislikes. Similarly,
you'll want your financial advisor to have immediate access to meaningful
resources and working relationships with experts in the various
and complex fields of accounting, law, taxation, and insurance when
appropriate - like the guides travel agents arrange to meet you
in some "foreign" locale.
KNOW THE LINGO
A trip to the "Financial Islands" requires that you
be prepared for an ever-changing language barrier. The eclectic
terminology of financial planning even troubles experts and may
be downright aggravating for the novice. Attempt to master financial
terms on your own, without the assistance and interest of your financial
planner, and be prepared for some very costly mistakes. Your planner
is your interpreter, well-versed in the language of investments,
strategies and risk avoidance. A good advisor will explain strange
terms and their meaning in relation to your plan. Like immersion
in a foreign land, once you've begun your plan, you'll be surprised
at how quickly you come to understand the once foreign language
YOU ARE NOT ALONE
Once you've decided which of the "Financial Islands" to
visit, intense selection can begin. If you buy individual stocks,
how many shares, which company, from whom, what purpose, where held,
what price, when, why, and much more? Making your own selections
means extensive research, unless, of course, you assume the risk
of "guesswork." For the inexperienced investor, however,
guessing is difficult, time-consuming, and inherently unwise. Your
financial advisor can make some general recommendations for you
to choose from in building a quality "core stock portfolio."
With any mutual fund, the professional portfolio manager decides
which stocks to buy, sell, and hold for you, without your input
or that of the other fund shareholders. Like tour guides, good portfolio
managers use their knowledge, experience, and resources to improve
the odds of making good picks and avoiding the not-so-good while
sticking to the fund's guidelines.
THE TIME IS NOW
When to begin planning is the next issue. The simple response
is a resounding "now." Procrastination in the planning
of either a dream vacation (while the weather is excellent) or retirement
(when interest rates, inflation, and taxes are all low) could prove
wholly disastrous or at least additionally expensive.
Every day that you put off planning and contributing, you allow
another opportunity to pass you by. Planning early will give you
the edge over other prospective retirees. Waiting until the last
minute will most likely reduce both your investment's purchasing
power and any meaningful accumulation of wealth, especially now
with the expanded contributions allowed for 401(k)s and IRAs.
Make last minute arrangements for your retirement and prepare to
suffer the same fate as the foolhardy traveler. Necessary precautions
can't be taken after the fact, and when the traveler tries to, his
or her dream vacation quickly degenerates into a nightmare. Similarly,
effective and early investment plans, built around decisions for
your future, should have a positive impact on the financial comfort
level of your retirement and on the folks who depend on you for
their financial well-being.
The earnings differences you forego by not investing wisely and
early could cost you an extra week of vacationing each and every
year for the rest of your retired life. What price do you place
on future comfort and opportunities for your enjoyment? Plan now!
A professional financial planner will advise you to plan and create
a lifetime checklist of financial comfort. It's called "Total
Financial Planning," and it should leave nothing to chance.
You may choose to ignore certain aspects, like long-term-care insurance
or investing in international mutual funds. After all, it's your
money and your life. But opportunities won't wait forever, and all
you have to do to get started is call.
Jack Lewis Ludwig, CFP, is a registered representative with
Nathan & Lewis Securities. Call (484) 919-4229, e-mail
jludwig@NLFS.com, or write to Jack at 422 Dorothy Drive,
Suite 200, King of Prussia, PA 19406 to discuss your own retirement
plan. You can still get a free copy of Vital Documents and IRA kits
(ROTH and/or regular). All, of course, are made available at no
charge or obligation.